April 21, 2010

Dogma Deconstruction & Abstraction Subtraction

"Most people are nothing and are considered nothing until they have dressed themselves up in general convictions and public opinions -- in accordance with the tailor philosophy: clothes make people. Of the exceptional person, however, it must be said: only he that wears it makes the costume; there opinions cease to be public and become something other than masks, finery, and disguises." ~ Friederich Nietzsche

It's much too easy to be an ideologue. Simply find an idea that is abstract and hand-select some pieces of the idea to persuade others to a particular point of view. Of course, this particular point of view is used as leverage to sell something -- an idea, product, or service (or all of the above).

Before engaging in a dialogue between my written words and your mind, please allow me to define a few terms (the definition of terms is where a good philosopher begins in the presentation of an argument)!

An ideologue is someone who purports a certain ideology (a set of ideas representing a general view of things). Ideas supporting the ideology are given positive reinforcement and used in persuasion to attract others to the given ideology. Ideas conflicting with the ideologue's perspective are generally shunned. Political ideologies (i.e conservatism, liberalism) are quick and easy examples.

Ideology also has similar meaning to dogma, which may be considered an absolute ideology (a core principle that must be upheld by all followers). A dogmatic person states opinions as if they are fact (e.g. "My way of thinking is truth, yours is false.")

Dogmatic individuals like to use a philosophical tool called abstraction. If something is abstract, it is a universal idea that is so general in meaning that is easily understood by individuals but seldom defined in concrete terms. I often refer to the idea of retirement as an example of an abstract idea: It has universal meaning but many individuals have no real concrete definition of the idea in their minds; and set out on a financial course with no true, self-chosen destination.

Now, let's tie ideology, dogmatism, and abstraction to modern thinking, including financial applications, as we return to my original statement: It's too easy to be an ideologue! Here are a few examples of ideological/dogmatic/abstract ideas and arguments:

The Market will be higher/lower by X date in the future: What is "the market?" Most would agree that "the market" is the broader stock market as represented by the Standard & Poor's 500 Index (S&P 500). The Dow Jones Industrial Average, however, still receives the headlines on mainstream media. The Dow is only made up of 30 United States (domestic) large capitalization industrial stocks. The S&P 500 Index is comprised of roughly 500 of the largest domestic companies. Still, the meaning of "the market" is something most people readily understand but would not know to cite the S&P 500 or Dow, and adding insult to injury, even if these indexes do not truly represent the stock market as a whole. This is abstraction at its finest. While the overall capital market benchmarks are noteworthy, they do not always have prudent foundations in your personal finance decisions. They just work well for mass communication and cocktail party conversations.

Buy & Hold is Dead: The term "buy and hold" is abstract, which is why ideologues and dogmatic individuals like to use and abuse the term. Mention "buy & hold" in a group of investors and they will all nod their heads to acknowledge their understanding. Ask each investor what it means to them and you get an array of definitions or "I don't know" replies.

A popular ideological argument today, for example, is "Buy & Hold is Dead." Ideologues easily cite evidence, such as the so-called "lost decade," where a 10-year investment in stocks during the first decade of this century would have resulted in a negative return. But how many investors buy an S&P 500 index fund and hold it for ten years without adding any new money or without the diversification of any other investment types? Who really invests with no selection criteria and no objective other than to hold the investment for several years?

Many "Buy & Hold" investors (my simple definition being investors who buy shares of securities with the intention, but not obligation, of holding them for at least 3 years) have actually done quite well, especially those who have included other investment types beyond large-cap stocks, such as small-cap stocks, bonds, emerging markets, and various sectors.

Warren Buffett is the most notorious example and arguably the standard for buy & hold and value investing strategies. His Berkshire Hathaway stock has returned an average 22% per year since 1965. If Buffett may be defined as "buy & hold" then it may be nearly extinct but certainly not dead.

What about the 100-year old secret millionaire who bought $180 worth of stock in 1935 and donated it to a college? To the delightful surprise of the college, this unassuming, quiet, little old lady's bequest in a will amounted to $7 million!

Republicans are Idiots / Democrats are Idiots: How easy is it to make a credible argument either for or against these statements? Can you think of a political ideologue? I am sure you can! Are politicians dogmatic? The short answer is yes. Politicians love the abstract. They can turn a legislative bill of 1,000 pages into a 30-second sound bite and argue quite effectively on either side of the relative issue.

We All Must Seek & Acquire Financial Freedom: Financial Freedom, in my humble opinion, is the most abstract, and hence among the most abused ideas in the world of personal finance. Quickly define "Financial." Now quickly define "Freedom." Now quickly define "Financial Freedom." How did you do? If the term Financial Freedom is not made concrete (applicable and defined by and for a particular individual) the individual may paradoxically increase the odds that true freedom is never obtained, regardless of financial wealth. Can freedom be procured by financial means? Are there any financially poor people who are free? Are there any financially wealthy people who are not free?

"It cannot be denied that words are of excellent use, in that by their means all that stock of knowledge which has been purchased by the joint labors of inquisitive men of all ages and nations may be drawn into the view and made the possession of one single person. But at the same time it must be owned that most parts of knowledge have been strangely perplexed and darkened by the abuse of words, and general ways of speech wherein they are delivered. Since therefore words are so apt to impose on the understanding, whatever ideas I consider, I shall endeavor to take them bare and naked into my view, keeping out of my thoughts so far as I am able those names which long and constant use has so strictly united with them..." ~ George Berkeley

In summary, ideas are tools -- they can be effectively used for certain
purposes at certain times, but not prudent as absolutes or perpetual
commitment. Just use ideas correctly and define them for yourself!

Abstract ideas, or the general, universally understood ideas, are quite useful for mass communication; however, the ideologues and dogmatic people of the world will use abstraction as leverage to support their cause, or to convince others to buy their product, by attracting the unassuming ignorance of the masses and the human tendency to herd behavior.

To conclude, the implicit suggestion in my Wall Street Journal blog interview was that conventional Financial Advisers like to use abstract ideas, such as retirement, financial freedom, rich, success, and happiness to sell financial products and services.

As a consumer of information, you will be served well by your own awareness of abstraction, ideology and dogma when you see it and hear it. Even better, you will deconstruct the dogma and subtract from the abstract by creating your own concrete definitions of terms...

And remember... Minds become strong by remaining open and flexible to changing; a closed mind is a weak mind -- it is no better than a small mind -- the mind that has no capacity to grow.

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Excellent post!
I’ve just read a book: Brainwashing by Kathleen Taylor. Taylor named abstract ideas ethereal ideas. Since those ideas are abstract and not supported by concrete facts they can be explained in many different ways. And this is what, according to Taylor, brainwashers do. She defines dogmatic thinking as a way of thinking which is close minded and used by ideologists to gather more followers (e.g. dictators in politics, leader of sects, etc.). It seems that social science (economics, finance, politics, sociology, etc.) is vulnerable to ideology and dogmatism, since it is founded on abstract ideas. As you perfectly conclude in your post “Minds become strong by remaining open and flexible to changing”, it is a way to prevent ourselves falling in the trap of dogmatic thinking. And as you say in most of your post, first we must be aware of this.

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